UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 -------------------- FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005 COMMISSION FILE NUMBER 1-5794 MASCO CORPORATION (Exact name of Registrant as Specified in Charter) DELAWARE 1-5794 38-1794485 -------- ------ ---------- (State or Other Jurisdiction (Commission File Number) (IRS Employer of Incorporation) Identification No.) 21001 VAN BORN ROAD, TAYLOR, MICHIGAN 48180 ------------------------------------- ----- (Address of Principal Executive Offices) (Zip Code) (313) 274-7400 -------------- Registrant's telephone number, including area code Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). [X] Yes [ ] No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. <TABLE> <CAPTION> Class Shares Outstanding at August 1, 2005 ----- ------------------------------------ <S> <C> Common stock, par value $1.00 per share 430,400,000 </TABLE>
MASCO CORPORATION INDEX <TABLE> <CAPTION> PAGE NO. -------- <S> <C> Part I. Financial Information Item 1. Financial Statements: Condensed Consolidated Balance Sheets - June 30, 2005 and December 31, 2004 1 Condensed Consolidated Statements of Income for the Three Months and Six Months Ended June 30, 2005 and 2004 2 Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2005 and 2004 3 Notes to Condensed Consolidated Financial Statements 4-13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14-19 Item 4. Controls and Procedures 20 Part II. Other Information 21-22 Item 1. Legal Proceedings Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Item 4. Submission of Matters to a Vote of Security Holders Item 6. Exhibits </TABLE>
MASCO CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) JUNE 30, 2005 AND DECEMBER 31, 2004 (DOLLARS IN MILLIONS EXCEPT SHARE DATA) <TABLE> <CAPTION> JUNE 30, DECEMBER 31, 2005 2004 -------- ----------- <S> <C> <C> ASSETS Current assets: Cash and cash investments $ 1,538 $ 1,256 Accounts and notes receivable, net 1,956 1,732 Prepaid expenses and other 269 282 Inventories: Raw material 434 406 Finished goods 618 577 Work in process 172 149 ------- ------- 1,224 1,132 ------- ------- Total current assets 4,987 4,402 Property and equipment, net 2,205 2,272 Goodwill 4,307 4,408 Other intangible assets, net 317 326 Other assets 835 1,133 ------- ------- Total assets $12,651 $12,541 ======= ======= LIABILITIES Current liabilities: Notes payable $ 875 $ 80 Accounts payable 951 837 Accrued liabilities 1,206 1,230 ------- ------- Total current liabilities 3,032 2,147 Long-term debt 3,876 4,187 Deferred income taxes and other 764 784 ------- ------- Total liabilities 7,672 7,118 ------- ------- Commitments and contingencies SHAREHOLDERS' EQUITY Preferred shares, par value $1 per share Authorized shares: 1,000,000; issued: 2005 - None; 2004 - None -- -- Common shares, par value $1 per share Authorized shares: 1,400,000,000; issued: 2005 - 431,230,000; 2004 - 446,720,000 431 447 Paid-in capital 133 642 Retained earnings 4,217 3,880 Accumulated other comprehensive income 406 627 Less: Restricted stock awards (208) (173) ------- ------- Total shareholders' equity 4,979 5,423 ------- ------- Total liabilities and shareholders' equity $12,651 $12,541 ======= ======= </TABLE> See notes to condensed consolidated financial statements. 1
MASCO CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2005 AND 2004 (DOLLARS IN MILLIONS EXCEPT PER SHARE DATA) <TABLE> <CAPTION> THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------ ------------------ 2005 2004 2005 2004 ------- ------- ------- ------- <S> <C> <C> <C> <C> Net sales $ 3,348 $ 3,061 $ 6,317 $ 5,867 Cost of sales 2,363 2,087 4,491 4,042 ------- ------- ------- ------- Gross profit 985 974 1,826 1,825 Selling, general and administrative expenses 515 504 1,015 989 (Income) regarding litigation settlement (3) (7) (5) (28) ------- ------- ------- ------- Operating profit 473 477 816 864 ------- ------- ------- ------- Other income (expense), net: Interest expense (57) (52) (116) (105) Other, net 16 41 53 93 ------- ------- ------- ------- (41) (11) (63) (12) ------- ------- ------- ------- Income from continuing operations before income taxes and minority interest 432 466 753 852 Income taxes 153 167 257 307 ------- ------- ------- ------- Income from continuing operations before minority interest 279 299 496 545 Minority interest 5 5 10 10 ------- ------- ------- ------- Income from continuing operations 274 294 486 535 Income (loss) from discontinued operations, net of income taxes -- (33) 19 (106) ------- ------- ------- ------- Net income $ 274 $ 261 $ 505 $ 429 ======= ======= ======= ======= Earnings per common share: Basic: Income from continuing operations $ .65 $ .66 $ 1.14 $ 1.19 Income (loss) from discontinued operations, net of income taxes -- (.08) .04 (.24) ------- ------- ------- ------- Net income $ .65 $ .59 $ 1.18 $ .95 ======= ======= ======= ======= Diluted: Income from continuing operations $ .64 $ .65 $ 1.11 $ 1.16 Income (loss) from discontinued operations, net of income taxes -- (.07) .04 (.23) ------- ------- ------- ------- Net income $ .64 $ .58 $ 1.16 $ .93 ======= ======= ======= ======= Cash dividends per common share: Declared $ .20 $ .16 $ .40 $ .32 ======= ======= ======= ======= Paid $ .20 $ .16 $ .38 $ .32 ======= ======= ======= ======= </TABLE> See notes to condensed consolidated financial statements. 2
MASCO CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004 (DOLLARS IN MILLIONS) <TABLE> <CAPTION> SIX MONTHS ENDED JUNE 30, ---------------- 2005 2004 ------ ------ <S> <C> <C> CASH FLOWS FROM (FOR) OPERATING ACTIVITIES: Cash provided by operations $ 659 $ 715 (Increase) in receivables (288) (348) (Increase) in inventories (126) (174) Increase in accounts payable and accrued liabilities, net 174 291 ------ ------ Total cash from operating activities 419 484 ------ ------ CASH FLOWS FROM (FOR) FINANCING ACTIVITIES: Increase in debt 1 120 Payment of debt (36) (20) Issuance of notes, net of issuance costs 494 299 Issuance of Company common stock 24 22 Retirement of notes -- (266) Proceeds from settlement of swaps -- 55 Purchase of Company common stock (607) (719) Cash dividends paid (167) (149) ------ ------ Total cash (for) financing activities (291) (658) ------ ------ CASH FLOWS FROM (FOR) INVESTING ACTIVITIES: Capital expenditures (126) (124) Purchases of marketable securities (90) (242) Proceeds from marketable securities 192 300 Proceeds from disposition of: Other investments, net 15 22 Businesses, net of cash disposed 103 -- Acquisition of companies, net of cash acquired (5) (13) Other, net 19 18 ------ ------ Total cash from (for) investing activities 108 (39) ------ ------ Effect of exchange rates on cash and cash investments 8 (10) ------ ------ CASH AND CASH INVESTMENTS: Increase (decrease) for the period 244 (223) Cash at businesses held for sale -- (45) At January 1 (including discontinued operations) 1,294 795 ------ ------ At June 30 $1,538 $ 527 ====== ====== </TABLE> See notes to condensed consolidated financial statements. 3
MASCO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) A. In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments, of a normal recurring nature, necessary to present fairly its financial position as at June 30, 2005 and the results of operations for the three months and six months ended June 30, 2005 and 2004 and changes in cash flows for the six months ended June 30, 2005 and 2004. The condensed consolidated balance sheet at December 31, 2004 was derived from audited financial statements. Certain prior-year amounts have been reclassified to conform to the 2005 presentation in the condensed consolidated financial statements. The results of operations related to discontinued operations have been separately stated in the accompanying condensed consolidated statements of income for 2005 and 2004. In the Company's condensed consolidated statements of cash flows for the six months ended June 30, 2005 and 2004, the cash flows of discontinued operations are not separately classified. 4
MASCO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) Note A - concluded: STOCK OPTIONS AND AWARDS. In December 2004, the Financial Accounting Standards Board ("FASB") issued a revision to Statement of Financial Accounting Standards No. 123 ("SFAS No. 123R"), "Accounting for Stock-Based Compensation," which supersedes Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS No. 123R requires companies to measure and recognize the cost (fair value) of employee services received in exchange for stock options. SFAS No. 123R also clarifies and expands guidance in several areas including measuring fair value and classification of employee stock-based compensation, including stock options, restricted stock awards and stock appreciation rights. In April 2005, the Securities and Exchange Commission amended the compliance dates for SFAS No. 123R and extended the implementation date to the beginning of a company's next fiscal year beginning after June 15, 2005. Based on the amended compliance dates, the Company will adopt SFAS No. 123R effective January 1, 2006. The Company is currently evaluating which implementation method it will use and the impact the provisions of SFAS No. 123R will have on its consolidated financial statements. The Company has been using the fair value method for options granted, modified or settled subsequent to January 1, 2003. In the first half of 2005, 4,113,040 option shares, including restoration option shares, were awarded. The following table illustrates the pro forma effect on net income and earnings per common share for the three months and six months ended June 30, 2005 and 2004, as if the fair value method were applied to all previously issued, outstanding and unvested stock options, in millions except per common share data: <TABLE> <CAPTION> THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------- --------------- 2005 2004 2005 2004 ---- ---- ----- ---- <S> <C> <C> <C> <C> Net income, as reported $274 $261 $ 505 $429 Add: Stock-based employee compensation expense included in reported net income, net of tax 11 10 24 20 Deduct: Stock-based employee compensation expense, net of tax (11) (10) (24) (20) Stock-based employee compensation expense determined under the fair value method for stock options granted prior to 2003, net of tax (1) (3) (3) (6) ---- ---- ----- ---- Pro forma net income $273 $258 $ 502 $423 ==== ==== ===== ==== Earnings per common share: Basic as reported $.65 $.59 $1.18 $.95 Basic pro forma $.64 $.58 $1.17 $.94 Diluted as reported $.64 $.58 $1.16 $.93 Diluted pro forma $.63 $.57 $1.15 $.92 </TABLE> 5
MASCO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) B. In early 2005, in separate transactions, the Company disposed of its Gebhardt Consolidated and GMU Group businesses in Europe. Gebhardt Consolidated supplies ventilation products and GMU Group manufactures cabinets. Total gross proceeds from the sale of Gebhardt Consolidated and the GMU Group were $130 million; $89 million in cash proceeds was received during the first quarter of 2005 and the remaining $41 million was collected in early April 2005. The Company recognized a pre-tax net gain (included in discontinued operations) on the disposition of these businesses of $11 million, principally related to Gebhardt Consolidated. The assets and liabilities held for sale at December 31, 2004 of $163 million and $44 million, respectively, have been included in the other assets and deferred income taxes and other captions on the condensed consolidated balance sheet. Net proceeds from the dispositions completed in 2005 and 2004 aggregated $281 million. In the second quarter of 2005, the Company recognized an additional $1 million of expenses, primarily related to professional fees incurred for the disposition of businesses, which was offset by income related to the adjustment of prior accruals for severance and termination benefits. Selected financial information for discontinued operations, during the period owned by the Company, is as follows for the three months and six months ended June 30, 2005 and 2004, in millions: <TABLE> <CAPTION> THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------ ---------------- 2005 2004 2005 2004 ----- ----- ----- ----- <S> <C> <C> <C> <C> Net sales $ -- $ 108 $ 17 $ 203 ===== ===== ===== ===== Income from discontinued operations $ 1 $ 12 $ 4 $ 18 (Loss) gain on disposal of discontinued operations, net (1) -- 10 -- Impairment of assets held for sale -- (44) -- (108) ----- ----- ----- ----- Income (loss) before income taxes -- (32) 14 (90) Income tax benefit (expense) -- (1) 5 (16) ----- ----- ----- ----- Income (loss) from discontinued operations, net of income taxes $ -- $ (33) $ 19 $(106) ===== ===== ===== ===== </TABLE> The unusual relationship between income tax benefit and income before income taxes (including the net gain on disposal of discontinued operations) in 2005 results from the gain requiring no current tax expense and the reversal of deferred tax liabilities of the discontinued operations which are no longer expected to be incurred. The after-tax charge for the impairment of assets held for sale of $120 million included $12 million for the expensing of deferred tax assets of the discontinued operations for the six months ended June 30, 2004. 6
MASCO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) C. The changes in the carrying amount of goodwill for the six-month period ended June 30, 2005, by segment, are as follows, in millions: <TABLE> <CAPTION> BALANCE BALANCE DEC. 31, 2004 ADDITIONS(A) OTHER(B) JUNE 30, 2005 ------------- ------------ -------- ------------- <S> <C> <C> <C> <C> Cabinets and Related Products $ 644 $ -- $ (50) $ 594 Plumbing Products 514 -- (33) 481 Installation and Other Services 1,710 4 -- 1,714 Decorative Architectural Products 344 -- (5) 339 Other Specialty Products 1,196 12 (29) 1,179 ------ ----- ----- ------ Total $4,408 $ 16 $(117) $4,307 ====== ===== ===== ====== </TABLE> (A) Additions include several relatively small acquisitions in the Installation and Other Services segment and contingent consideration for prior acquisitions. (B) Other principally includes foreign currency translation adjustments. Other indefinite-lived intangible assets include registered trademarks of $254 million at June 30, 2005. The carrying value of the Company's definite-lived intangible assets is $63 million at June 30, 2005 (net of accumulated amortization of $73 million) and principally includes customer relationships and non-compete agreements. Amortization expense for definite-lived intangible assets was $4 million and $9 million for the three months and six months ended June 30, 2005, respectively, and $5 million and $10 million for the three months and six months ended June 30, 2004, respectively. D. Depreciation and amortization expense is $123 million and $118 million for the six months ended June 30, 2005 and 2004, respectively. E. The Company has maintained investments in marketable securities and a number of private equity funds, principally as part of its tax planning strategies, as any gains enhance the utilization of tax capital loss carryforwards. Included in other assets are the following financial investments, in millions: <TABLE> <CAPTION> JUNE 30, DECEMBER 31, 2005 2004 -------- ------------ <S> <C> <C> Marketable securities: Furniture Brands International $ 86 $100 Other 68 163 Private equity funds 297 308 Metaldyne Corporation 89 84 TriMas Corporation 46 46 Other investments 10 9 ---- ---- Total $596 $710 ==== ==== </TABLE> The Company's investments in marketable securities at June 30, 2005 and December 31, 2004 are as follows, in millions: <TABLE> <CAPTION> PRE-TAX ----------------------- UNREALIZED UNREALIZED RECORDED COST BASIS GAINS LOSSES BASIS ---------- ---------- ---------- -------- <S> <C> <C> <C> <C> June 30, 2005 $158 $ 10 $(14) $154 December 31, 2004 $227 $ 36 $ -- $263 </TABLE> 7
MASCO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) Note E - concluded: The fair value of the Company's investments in temporarily-impaired marketable securities was $86 million; such investments have been in an unrealized loss position for less than twelve months at June 30, 2005. The Company had investments in over 30 different marketable securities at June 30, 2005. The Company reviews industry analyst reports, key ratios and statistics, market analyses and other factors for each investment to determine if an unrealized loss is other-than-temporary. The unrealized loss at June 30, 2005 is primarily related to one marketable security, Furniture Brands International (NYSE: FBN) common stock (four million shares). In the fourth quarter of 2004, the Company recognized an impairment charge of $21 million related to its investment in FBN and reduced the cost basis from $30.25 per share to $25.05 per share, the market value at December 31, 2004. Based on its review, the Company considers the unrealized loss at June 30, 2005, related to this investment, to be temporary. Income from financial investments, included in other, net, within other income (expense), net, is as follows, in millions: <TABLE> <CAPTION> THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------ ---------------- 2005 2004 2005 2004 ---- ---- ---- ---- <S> <C> <C> <C> <C> Realized gains from marketable securities $ 1 $ 16 $ 28 $ 35 Realized losses from marketable securities (3) (7) (4) (10) Dividend income from marketable securities 1 4 2 9 Income from other investments, net 30 5 45 18 Dividend income from other investments 3 3 6 5 ---- ---- ---- ---- Income from financial investments, net $ 32 $ 21 $ 77 $ 57 ==== ==== ==== ==== Impairment charge for marketable securities $ (2) $ -- $ (2) $ -- ==== ==== ==== ==== </TABLE> F. The Company's total comprehensive income is as follows, in millions: <TABLE> <CAPTION> THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------- ---------------- 2005 2004 2005 2004 ----- ---- ----- ---- <S> <C> <C> <C> <C> Net income $ 274 $261 $ 505 $429 Other comprehensive income (loss): Cumulative translation adjustments (108) 3 (195) (25) Unrealized gain (loss) on marketable securities, net 2 (24) (26) (15) ----- ---- ----- ---- Total comprehensive income $ 168 $240 $ 284 $389 ===== ==== ===== ==== </TABLE> The unrealized gain (loss) on marketable securities is net of income tax (credits) of $2 million and $(14) million for the three months and six months ended June 30, 2005, respectively, and $(15) million and $(9) million for the three months and six months ended June 30, 2004, respectively. 8
MASCO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) Note F - concluded: The components of accumulated other comprehensive income are as follows, in millions: <TABLE> <CAPTION> JUNE 30, DECEMBER 31, 2005 2004 -------- ------------ <S> <C> <C> Cumulative translation adjustments $475 $670 Unrealized (loss) gain on marketable securities, net (3) 23 Minimum pension liability (66) (66) ---- ---- Accumulated other comprehensive income $406 $627 ==== ==== </TABLE> Unrealized (loss) gain on marketable securities, net is reported net of income tax (credit) of $(1) million and $13 million at June 30, 2005 and December 31, 2004, respectively. The minimum pension liability is reported net of income tax credit of $38 million at both June 30, 2005 and December 31, 2004. G. The Company owns 64 percent of Hansgrohe AG. The minority interest of $85 million and $80 million at June 30, 2005 and December 31, 2004, respectively, is recorded in the caption deferred income taxes and other liabilities on the Company's condensed consolidated balance sheets. H. On June 10, 2005, the Company issued $500 million of fixed-rate 4.80% notes due 2015, resulting in net proceeds of $494 million. I. The net periodic pension cost for the Company's qualified defined-benefit pension plans is as follows, in millions: <TABLE> <CAPTION> THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------ ---------------- 2005 2004 2005 2004 ---- ---- ---- ---- <S> <C> <C> <C> <C> Service cost $ 4 $ 3 $ 8 $ 6 Interest cost 10 9 20 16 Expected return on plan assets (9) (7) (19) (13) Amortization of net loss 1 1 3 3 ---- ---- ---- ---- Net periodic pension cost $ 6 $ 6 $ 12 $ 12 ==== ==== ==== ==== </TABLE> Net periodic pension cost for the Company's non-qualified unfunded supplemental pension plans was $4 million and $9 million for the three months and six months ended June 30, 2005, respectively, and $5 million and $9 million for the three months and six months ended June 30, 2004, respectively. 9
MASCO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) J. The following table presents information about the Company by segment and geographic area, in millions: <TABLE> <CAPTION> THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, --------------------------------- --------------------------------- 2005 2004 2005 2004 2005 2004 2005 2004 --------------------------------- --------------------------------- NET SALES (A) OPERATING PROFIT NET SALES (A) OPERATING PROFIT --------------------------------- --------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> The Company's operations by segment were: Cabinets and Related Products $ 900 $ 797 $ 144 $ 137 $1,738 $1,576 $ 268 $ 246 Plumbing Products 823 785 108 117 1,583 1,524 187 213 Installation and Other Services 764 686 102 88 1,457 1,316 182 169 Decorative Architectural Products 506 451 96 101 877 821 155 165 Other Specialty Products 355 342 68 71 662 630 113 116 ------ ------ ------ ------ ------ ------ ------ ------ Total $3,348 $3,061 $ 518 $ 514 $6,317 $5,867 $ 905 $ 909 ====== ====== ====== ====== ====== ====== ====== ====== The Company's operations by geographic area were: North America $2,784 $2,531 $ 447 $ 442 $5,189 $4,802 $ 773 $ 771 International, principally Europe 564 530 71 72 1,128 1,065 132 138 ------ ------ ------ ------ ------ ------ ------ ------ Total $3,348 $3,061 518 514 $6,317 $5,867 905 909 ====== ====== ====== ====== General corporate expense, net (48) (45) (94) (81) Income regarding litigation settlement(B) 3 7 5 28 Gain on sale of corporate fixed assets -- 1 -- 8 ------ ------ ------ ------ Operating profit 473 477 816 864 Other income (expense), net (41) (11) (63) (12) ------ ------ ------ ------ Income from continuing operations before income taxes and minority interest $ 432 $ 466 $ 753 $ 852 ====== ====== ====== ====== </TABLE> (A) Intra-segment sales were not material. (B) The Company recorded income regarding the litigation discussed in Note M related to the Company's subsidiary, Behr Process Corporation. Behr is included in the Decorative Architectural Products segment. 10
MASCO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) K. Other, net, which is included in other income (expense), net, includes the following, in millions: <TABLE> <CAPTION> THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------ ---------------- 2005 2004 2005 2004 ---- ---- ---- ---- <S> <C> <C> <C> <C> Income from cash and cash investments $ 5 $ 1 $ 11 $ 3 Other interest income 1 1 2 3 Income from financial investments, net (Note E) 32 21 77 57 Impairment charge for marketable securities (2) -- (2) -- Other items, net (20) 18 (35) 30 ---- ---- ---- ---- $ 16 $ 41 $ 53 $ 93 ==== ==== ==== ==== </TABLE> Other items, net for the three months and six months ended June 30, 2005 include $14 million and $27 million, respectively, of currency transaction losses. Other items, net for the three months and six months ended June 30, 2004 include $6 million and $12 million, respectively, of currency transaction gains. Other items, net for the three months and six months ended June 30, 2004 also include a $5 million gain from the sale of non-operating assets. L. The following are reconciliations of the numerators and denominators used in the computations of basic and diluted earnings per common share, in millions: <TABLE> <CAPTION> THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------ ---------------- 2005 2004 2005 2004 ----- ----- ----- ----- <S> <C> <C> <C> <C> Numerator (basic and diluted): Income from continuing operations $ 274 $ 294 $ 486 $ 535 Income (loss) from discontinued operations, net of income taxes -- (33) 19 (106) ----- ----- ----- ----- Net income, as reported $ 274 $ 261 $ 505 $ 429 ===== ===== ===== ===== Denominator: Basic common shares (based on weighted average) 423 443 428 450 Add: Contingent common shares 3 6 4 6 Stock option dilution 4 4 5 4 ----- ----- ----- ----- Diluted common shares 430 453 437 460 ===== ===== ===== ===== </TABLE> Income per common share amounts for the first two quarters of 2005 and 2004 do not total to the per common share amounts for the six months ended June 30, 2005 and 2004 due to the timing of stock repurchases and the effect of contingently issuable shares. For both the three months and six months ended June 30, 2005, the Company did not include any common shares related to the Zero Coupon Convertible Senior Notes ("Notes") in the calculation of diluted earnings per common share, as the price of the Company's common stock at June 30, 2005 did not exceed the equivalent accreted value of the Notes. 11
MASCO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) Note L - concluded: In the first half of 2005, the Company repurchased and retired approximately 18 million shares of Company common stock, for cash aggregating approximately $607 million. At June 30, 2005, the Company had approximately 42 million common shares remaining under the March 2005 Board of Directors repurchase authorization. Additionally, 0.9 million and 0.7 million common shares for the three months and six months ended June 30, 2005, respectively, and 1.9 million and 2.9 million common shares for the three months and six months ended June 30, 2004, respectively, related to stock options were excluded from the computation of diluted earnings per common share due to their antidilutive effect, since the option exercise price was greater than the Company's average common stock price for these periods. M. LITIGATION. The Company is subject to lawsuits and pending or asserted claims with respect to matters generally arising in the ordinary course of business. As the Company reported in previous filings, late in the second half of 2002, the Company and its subsidiary, Behr Process Corporation, agreed to two Settlements (the National Settlement and the Washington State Settlement) to resolve all class action lawsuits pending in the United States involving certain exterior wood coating products formerly manufactured by Behr Process Corporation. The following is a reconciliation of the Company's Behr Process Settlement liability, in millions: <TABLE> <S> <C> Balance at January 1, 2005 $ 19 Payments on claims (9) Reduction for liabilities paid by insurance carriers (5) ---- Balance at June 30, 2005 $ 5 ==== </TABLE> The Company expects that the evaluation, processing and payment of claims for both the National Settlement and the Washington State Settlement should be completed by December 31, 2005. As previously disclosed, several lawsuits have been brought against the Company and a number of its insulation installation companies in the federal court in Atlanta, Georgia, alleging that certain practices violate provisions of federal and state antitrust laws. The Company believes that the conduct of the Company and its insulation installation companies, which have been the subject of these lawsuits, has not violated any antitrust laws. As previously disclosed, European governmental authorities are investigating possible anticompetitive business practices relating to the plumbing and heating industries in Europe. The investigations involve a number of European companies, including certain of the Company's European manufacturing divisions and a number of other large businesses. In addition, several private antitrust lawsuits have been filed in the United States against, among others, the Company and several other companies that are being investigated, which appear to be an outgrowth of the European investigations. The Company believes that it will not incur material liability as a result of the matters that are subject to these investigations or as a result of any such lawsuits. 12
MASCO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONCLUDED) Note M - concluded: WARRANTY. The following is a reconciliation of the Company's warranty liability, in millions: <TABLE> <S> <C> Balance at January 1, 2005 $100 Accruals for warranties issued during the period 30 Accruals related to pre-existing warranties 1 Settlements made (in cash or kind) during the period (26) Other, net (including foreign exchange impact) (3) ---- Balance at June 30, 2005 $102 ==== </TABLE> STOCK PRICE GUARANTEES. In May 2005, the Company settled the guarantee related to the value of 1.6 million shares of Company common stock for a stock price of $40 per share related to a 2001 divestiture. The guarantee was settled for cash and stock aggregating approximately $12 million. At June 30, 2005, there were no outstanding stock price guarantees. N. In June 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections - a Replacement to APB Opinion No. 20 and SFAS No. 3." SFAS No. 154 requires retrospective application to prior periods' financial statements of a voluntary change in accounting principle, unless it is impracticable. Previously, most voluntary changes in accounting principle were recognized by including the cumulative effect of changing to the new accounting principle in net income of the period of the change. The adoption of SFAS No. 154 is effective for accounting changes and error corrections subsequent to December 31, 2005, and is not expected to have a material effect on the Company's consolidated financial statements. O. In July 2005, the Company's key employees who participated in the Executive Stock Purchase Program settled their outstanding five-year full recourse personal loans with a bank syndicate. The Company had guaranteed the repayment of the loans; however, all such loans were settled with no requirement for the Company to fulfill such guarantees. 13
MASCO CORPORATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SECOND QUARTER 2005 AND THE FIRST SIX MONTHS 2005 VERSUS SECOND QUARTER 2004 AND THE FIRST SIX MONTHS 2004 SALES AND OPERATING PROFIT MARGINS The following table sets forth the Company's net sales and operating profit margins by segment and geographic area, dollars in millions: <TABLE> <CAPTION> THREE MONTHS ENDED JUNE 30, PERCENT INCREASE ------------------ ---------------- 2005 2004 2005 VS. 2004 ------ ------ ---------------- <S> <C> <C> <C> NET SALES: Cabinets and Related Products $ 900 $ 797 13% Plumbing Products 823 785 5% Installation and Other Services 764 686 11% Decorative Architectural Products 506 451 12% Other Specialty Products 355 342 4% ------ ------ Total $3,348 $3,061 9% ====== ====== North America $2,784 $2,531 10% International, principally Europe 564 530 6% ------ ------ Total $3,348 $3,061 9% ====== ====== </TABLE> <TABLE> <CAPTION> SIX MONTHS ENDED JUNE 30, ------------------ 2005 2004 ------ ------ <S> <C> <C> <C> NET SALES: Cabinets and Related Products $1,738 $1,576 10% Plumbing Products 1,583 1,524 4% Installation and Other Services 1,457 1,316 11% Decorative Architectural Products 877 821 7% Other Specialty Products 662 630 5% ------ ------ Total $6,317 $5,867 8% ====== ====== North America $5,189 $4,802 8% International, principally Europe 1,128 1,065 6% ------ ------ Total $6,317 $5,867 8% ====== ====== </TABLE> <TABLE> <CAPTION> THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------ ---------------- 2005 2004 2005 2004 ------ ------ ------- ------- <S> <C> <C> <C> <C> OPERATING PROFIT MARGIN: (A) Cabinets and Related Products 16.0% 17.2% 15.4% 15.6% Plumbing Products 13.1% 14.9% 11.8% 14.0% Installation and Other Services 13.4% 12.8% 12.5% 12.8% Decorative Architectural Products 19.0% 22.4% 17.7% 20.1% Other Specialty Products 19.2% 20.8% 17.1% 18.4% North America 16.1% 17.5% 14.9% 16.1% International, principally Europe 12.6% 13.6% 11.7% 13.0% Total 15.5% 16.8% 14.3% 15.5% TOTAL OPERATING PROFIT MARGIN, AS REPORTED 14.1% 15.6% 12.9% 14.7% </TABLE> (A) Before general corporate expense of $48 million and $94 million for the three-month and six-month periods ended June 30, 2005, respectively, and before income regarding the litigation settlement related to the Decorative Architectural Products segment of $3 million and $5 million for the three-month and six-month periods ended June 30, 2005, respectively. Before general corporate expense of $45 million and $81 million for the three-month and six-month periods ended June 30, 2004, respectively, gain on sale of Corporate fixed assets of $1 million and $8 million for the three-month and six-month periods ended June 30, 2004, respectively, and before income regarding the litigation settlement related to the Decorative Architectural Products segment of $7 million and $28 million for the three-month and six-month periods ended June 30, 2004, respectively. 14
MASCO CORPORATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company reports its financial results in accordance with generally accepted accounting principles ("GAAP") in the United States. However, the Company believes that certain non-GAAP performance measures and ratios, used in managing the business, may provide users of this financial information with additional meaningful comparisons between current results and results in prior periods. Non-GAAP financial measures and ratios should be viewed in addition to, and not as an alternative for, the Company's reported results. NET SALES Net sales increased nine percent and eight percent, respectively, for the three-month and six-month periods ended June 30, 2005 from the comparable periods in 2004. Excluding results from acquisitions, net sales increased nine percent and seven percent, respectively, (including a one percent increase in both periods relating to the effect of currency translation) for the three-month and six-month periods ended June 30, 2005. The following table reconciles reported net sales to net sales, excluding acquisitions and the effect of currency translation, in millions: <TABLE> <CAPTION> THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------ ------------------ 2005 2004 2005 2004 ------ ------ ------ ------ <S> <C> <C> <C> <C> Net sales, as reported $3,348 $3,061 $6,317 $5,867 Acquisitions (5) -- (10) -- ------ ------ ------ ------ Net sales, excluding acquisitions 3,343 3,061 6,307 5,867 Currency translation (21) -- (44) -- ------ ------ ------ ------ Net sales, excluding acquisitions and the effect of currency translation $3,322 $3,061 $6,263 $5,867 ====== ====== ====== ====== </TABLE> Net sales of Cabinets and Related Products increased 13 percent and 10 percent, respectively, in the three-month and six-month periods ended June 30, 2005 compared with the same periods of 2004, primarily due to increased sales volume in the new construction market. Net sales of Plumbing Products increased five percent and four percent, respectively, in the three-month and six-month periods ended June 30, 2005 compared with the same periods of 2004, principally due to the favorable impact of a weaker U.S. dollar as well as increased sales through the Company's wholesale distribution channel. Such sales increases were offset by a less favorable product mix and by continuing weakness impacting certain products sold through retail markets. Net sales of Installation and Other Services increased 11 percent in both the three-month and six-month periods ended June 30, 2005 compared with the same periods of 2004, primarily due to increased selling prices as well as increased sales volume of non-insulation products and continued increases in new construction markets. Net sales of Decorative Architectural Products increased 12 percent and seven percent, respectively, in the three-month and six-month periods ended June 30, 2005 compared with the same periods of 2004, primarily due to increased selling prices and increased sales volume in the second quarter for paints and stains. 15
MASCO CORPORATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net sales of Other Specialty Products increased four percent and five percent, respectively, in the three-month and six-month periods ended June 30, 2005 compared with the same periods of 2004, primarily due to an increase in sales volume of vinyl and fiberglass windows and doors to North American new construction markets. Such sales increases were offset, in part, by reduced sales of European operations included in this segment. Net sales from North American operations for the three-month and six-month periods ended June 30, 2005 increased 10 percent and eight percent, respectively, compared with the same periods of 2004, primarily due to the reasons discussed above. Net sales from International operations for both the three-month and six-month periods ended June 30, 2005 increased six percent compared with the same periods of 2004, primarily due to increased sales of cabinets and plumbing products, as well as a weaker U.S. dollar, principally against the Euro, which increased International sales by approximately four percent for both the three-month and six-month periods ended June 30, 2005. OPERATING MARGINS The Company's gross profit margins were 29.4 percent and 28.9 percent, respectively, for the three-month and six-month periods ended June 30, 2005 compared with 31.8 percent and 31.1 percent, respectively, for the comparable periods in 2004. The decrease in gross profit margins reflects increased commodity, energy and freight costs, as well as a less favorable product mix, offset, in part, by increased sales volume. Operating profit for the three-month and six-month periods ended June 30, 2005 includes $3 million and $5 million, respectively, of income regarding the Behr litigation settlement. Operating profit for the three-month and six-month periods ended June 30, 2004 includes $7 million and $28 million of income regarding the Behr litigation settlement. Operating profit margins for the Cabinets and Related Products segment for the three-month and six-month periods ended June 30, 2005 were 16.0 percent and 15.4 percent, respectively, compared with 17.2 percent and 15.6 percent, respectively, for the same periods of 2004, and reflect the impact of increased commodity and freight costs, as well as a shift to a less favorable product mix, which offset the positive impact of higher sales volume. Operating profit margins for the Plumbing Products segment were 13.1 percent and 11.8 percent, respectively, for the three-month and six-month periods ended June 30, 2005 compared with 14.9 percent and 14.0 percent, respectively, for the same periods of 2004, primarily due to a less favorable product mix, as well as increased commodity costs and lower results of European operations included in this segment. Operating profit margins for the Installation and Other Services segment were 13.4 percent and 12.5 percent, respectively, for the three-month and six-month periods ended June 30, 2005 compared with 12.8 percent for both of the comparable periods of 2004. The operating profit margin increase in this segment is primarily attributable to increased selling prices that were realized in the first half of 2005, as well as the favorable impact of higher sales volume. Within the Installation and Other Services segment, the availability of fiberglass insulation to support the Company's installation and distribution activities continues to be constrained. The high level of demand for fiberglass insulation as a result of the strong new construction market has outpaced the industry's capacity to produce additional product. While improving, the Company believes that these conditions will persist over the remainder of 2005 and is working with its diverse supplier base to secure as much material as possible. At the current time, the Company does not believe that this material shortage will have a significant impact on its operations. 16
MASCO CORPORATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Operating profit margins for the Decorative Architectural Products segment were 19.0 percent and 17.7 percent, respectively, for the three-month and six-month periods ended June 30, 2005 compared with 22.4 percent and 20.1 percent, respectively, for the same periods of 2004. The operating profit margin decline is primarily due to increased material costs offset, in part, by increased selling prices and sales volume of paints and stains. Operating profit margins for the Other Specialty Products segment were 19.2 percent and 17.1 percent, respectively, for the three-month and six-month periods ended June 30, 2005 compared with 20.8 percent and 18.4 percent, respectively, for the same periods of 2004. The operating profit margin decline is primarily attributable to increased commodity costs and lower results of European operations included in this segment. The Company's operating profit margins, as reported, were 14.1 percent and 12.9 percent, respectively, for the three-month and six-month periods ended June 30, 2005 compared with 15.6 percent and 14.7 percent, respectively, for the same periods of 2004. The Company's operating profit margins, excluding the Behr litigation income of $3 million and $5 million for the three-month and six-month periods ended June 30, 2005, respectively, and $7 million and $28 million for the three-month and six-month periods ended June 30, 2004, respectively, were 14.0 percent and 12.8 percent for the three-month and six-month periods ended June 30, 2005, respectively, and 15.4 percent and 14.2 percent for the three-month and six-month periods ended June 30, 2004, respectively. The Company's operating profit margins decreased for the three-month and six-month periods ended June 30, 2005 compared with the same periods of 2004, principally due to the reasons discussed above. OTHER INCOME (EXPENSE), NET Other, net, for the three-month and six-month periods ended June 30, 2005 includes $(2) million and $24 million, respectively, of realized (losses) gains, net, from the sale of marketable securities, dividend income of $4 million and $8 million, respectively, and $30 million and $45 million, respectively, of income from other investments, net. Other items, net for the three-month and six-month periods ended June 30, 2005 include $14 million and $27 million, respectively, of currency transaction losses. Other, net, for the three-month and six-month periods ended June 30, 2004 includes $9 million and $25 million, respectively, of realized gains, net, from the sale of marketable securities, dividend income of $7 million and $14 million, respectively, and $5 million and $18 million, respectively, of income from other investments, net. Other items, net for the three-month and six-month periods ended June 30, 2004 include $6 million and $12 million, respectively, of currency transaction gains. Other items, net for the three-month and six-month periods ended June 30, 2004 also include a $5 million gain from the sale of non-operating assets. Interest expense for the three-month and six-month periods ended June 30, 2005 increased $5 million and $11 million, respectively, to $57 million and $116 million, compared with interest expense of $52 million and $105 million, respectively, for the same periods of 2004, primarily due to the impact of increasing interest rates. 17
MASCO CORPORATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INCOME AND EARNINGS PER COMMON SHARE FROM CONTINUING OPERATIONS Income from continuing operations for the three-month and six-month periods ended June 30, 2005 was $274 million and $486 million, respectively, compared with $294 million and $535 million, respectively, for the comparable periods of 2004. Diluted earnings per common share from continuing operations for the three-month and six-month periods ended June 30, 2005 were $.64 and $1.11 per common share, respectively, compared with $.65 and $1.16 per common share, respectively, for the comparable periods of 2004. The Company's effective tax rate was 35.4 percent and 34.1 percent, respectively, for the three-month and six-month periods ended June 30, 2005, compared with 35.8 percent and 36.0 percent, respectively, for the same periods in 2004. The Company estimates that its effective tax rate should approximate 35 percent for the full year 2005. OTHER FINANCIAL INFORMATION The Company's current ratio was 1.6 to 1 and 2.1 to 1 at June 30, 2005 and December 31, 2004, respectively. The decline in the current ratio is primarily due to the reclassification to current liabilities of $800 million of 6.75% notes that will become due and payable on March 15, 2006. On June 10, 2005, the Company issued $500 million of fixed-rate 4.80% notes due 2015, resulting in net proceeds of $494 million. For the six months ended June 30, 2005, cash of $419 million was provided by operating activities. Cash used for financing activities was $291 million, including $167 million for cash dividends paid and $607 million for the acquisition and retirement of Company common stock in open-market transactions. Cash provided by financing activities included $494 million from the issuance of notes (net of issuance costs) and $24 million from the issuance of Company common stock for the exercise of stock options. Cash provided by investing activities was $108 million and primarily included $117 million from the net sales of marketable securities and other investments and $103 million of net proceeds from the disposition of businesses. Cash used for investing activities primarily included $126 million for capital expenditures. Note M to the Condensed Consolidated Financial Statements discusses specific claims pending against the Company. The Company is also subject to lawsuits and claims pending or asserted with respect to matters generally arising in the ordinary course of business. The Company believes that its present cash balance, its cash flows from operations and, to the extent necessary, bank borrowings and future financial market activities, are sufficient to fund its working capital and other investment needs. OUTLOOK FOR THE COMPANY The Company's 2005 first half results were adversely affected by increases in commodity, energy and freight costs, which have not been offset due, in part, to the lag in implementing selling price increases to customers, as well as a less favorable product mix. Second quarter 2005 sales and earnings, however, were better-than-expected, due to the strong new construction market as well as an improvement in key retailer sales. The Company is committed to its strategy of value creation and continues to be focused on the simplification of its business model, cash flow generation, improvement in return on invested capital and the return of cash to shareholders through share repurchases and dividends. 18
MASCO CORPORATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Consistent with this strategy, the Company is pursuing a variety of initiatives to offset cost increases and increase operating profit including sourcing programs, the restructuring of certain of its businesses (including consolidations), manufacturing rationalization, headcount reductions and other profit improvement programs. As previously disclosed, the Company believes these initiatives will reduce annual costs by $200 million by the end of 2007. Costs and charges related to the acceleration of these profit improvement programs, when combined with recent additional energy-related and commodity cost increases and the adverse effect of changes in currency values, are expected to negatively affect the Company's full-year 2005 earnings from continuing operations. Implementing these initiatives should improve the Company's earnings outlook for 2006 and beyond. FORWARD-LOOKING STATEMENTS Certain sections of this Quarterly Report contain statements reflecting the Company's views about its future performance and constitute "forward-looking statements" under the Private Securities Litigation Reform Act of 1995. These views involve risks and uncertainties that are difficult to predict and, accordingly, the Company's actual results may differ materially from the results discussed in such forward-looking statements. Readers should consider that various factors, including changes in general economic conditions, competitive market conditions and pricing pressures, relationships with key customers, industry consolidation of retailers, wholesalers and builders, shifts in distribution, the influence of e-commerce and other factors discussed in the Company's Annual Report on Form 10-K and its other filings with the Securities and Exchange Commission, may affect the Company's performance. The Company undertakes no obligation to update publicly any forward-looking statements as a result of new information, future events or otherwise. 19
MASCO CORPORATION ITEM 4. CONTROLS AND PROCEDURES a. Evaluation of Disclosure Controls and Procedures. The Company's principal executive officer and principal financial officer have concluded, based on the evaluation required by paragraph (b) of Rule 13a-15 under the Securities Exchange Act of 1934, of the Company's "disclosure controls and procedures" (as defined in paragraph (e) of Rule 13a-15), that, as of June 30, 2005, the Company's disclosure controls and procedures were effective. b. Changes in Internal Control Over Financial Reporting. In connection with the evaluation, required by paragraph (d) of Rule 13a-15 under the Securities Exchange Act of 1934, of the Company's "internal control over financial reporting" (as defined in paragraph (f) of Rule 13a-15), there was no change in the Company's internal control over financial reporting during the quarter ended June 30, 2005, that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. 20
MASCO CORPORATION PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Information regarding this item is set forth in Note M to the Company's Condensed Consolidated Financial Statements included in Part I, Item 1 of this Report. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS The following table provides information regarding the repurchase of Company common stock for the three months ended June 30, 2005, in millions except average price paid per common share data: <TABLE> <CAPTION> TOTAL NUMBER OF MAXIMUM NUMBER OF SHARES PURCHASED SHARES THAT MAY TOTAL NUMBER AVERAGE PRICE AS PART OF YET BE PURCHASED OF SHARES PAID PER PUBLICLY ANNOUNCED UNDER THE PLANS PERIOD PURCHASED COMMON SHARE PLANS OR PROGRAMS OR PROGRAMS - ------------- ------------ ------------- ------------------ ----------------- <S> <C> <C> <C> <C> 4/1/05- 4/30/05 3 $33.18 3 44 5/1/05- 5/31/05 2 $30.71 2 42 6/1/05- 6/30/05 -- $32.28 -- 42 --- --- Total for the quarter 5 $32.25 5 </TABLE> In March 2005, the Company's Board of Directors authorized the repurchase of up to an additional 50 million shares of the Company's common stock in open market transactions or otherwise, which replaced the December 2003 authorization. At the date of the new repurchase authorization, the Company had seven million shares remaining under the 2003 authorization. ITEMS 3 AND 5 ARE NOT APPLICABLE. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The annual meeting of stockholders was held on May 10, 2005 at which the stockholders voted upon (1) the election of three nominees for Class II Directors and one nominee for Class I Director, (2) the approval of the 2005 Long Term Stock Incentive Plan and (3) ratification of the selection of PricewaterhouseCoopers LLP as independent auditors for the Company for 2005. The following is a tabulation of the votes. ELECTION OF CLASS II DIRECTORS: <TABLE> <CAPTION> For Withheld --- ---------- <S> <C> <C> Verne G. Istock 378,549,954 5,718,740 David L. Johnston 378,556,622 5,712,072 J. Michael Losh 346,264,232 38,004,462 </TABLE> 21
MASCO CORPORATION PART II. OTHER INFORMATION - CONTINUED ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (CONCLUDED) ELECTION OF CLASS I DIRECTOR: <TABLE> <CAPTION> For Withheld --- -------- <S> <C> <C> Dennis W. Archer 380,717,234 3,551,460 </TABLE> The other directors whose terms of office continued after the Annual Meeting are Peter A. Dow, Anthony F. Earley, Jr., Thomas G. Denomme, Richard A. Manoogian and Mary Ann Van Lokeren. APPROVAL OF THE 2005 LONG TERM STOCK INCENTIVE PLAN: <TABLE> <CAPTION> Abstentions and For Against Broker Non-Votes - ----------- ---------- ---------------- <S> <C> <C> 308,026,098 38,899,094 708,818 </TABLE> APPROVAL OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT AUDITORS FOR THE COMPANY FOR 2005: <TABLE> <CAPTION> Abstentions and For Against Broker Non-Votes - ----------- --------- ---------------- <S> <C> <C> 379,461,917 2,543,451 2,263,326 </TABLE> ITEM 6. EXHIBITS 4bi - Directors' resolutions establishing Masco Corporation 4.80% Notes due 2015, together with form of note (filed herewith) under the Indenture dated as of February 12, 2001 between Masco Corporation and J. P. Morgan Trust Company, National Association (successor in interest to Bank One Trust Company, National Association), as Trustee (which Indenture has been filed as an Exhibit to the Company's Form 10-K for the year ended December 31, 2000) 12 - Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends 31a - Certification by Chief Executive Officer required by Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934 31b - Certification by Chief Financial Officer required by Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934 32 - Certification required by Rule 13a-14(b) or 15d-14(b) of the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States Code 99 - Directors' resolution regarding the filling of vacancies on the Board of Directors 22
MASCO CORPORATION PART II. OTHER INFORMATION - CONCLUDED SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MASCO CORPORATION (Registrant) DATE: AUGUST 4, 2005 BY: /s/ Timothy Wadhams --------------------------------- Timothy Wadhams Senior Vice President and Chief Financial Officer 23
MASCO CORPORATION EXHIBIT INDEX <TABLE> <CAPTION> EXHIBIT ------- <S> <C> Exhibit 4bi Directors' resolutions establishing Masco Corporation 4.80% Notes due 2015, together with form of note (filed herewith) under the Indenture dated as of February 12, 2001 between Masco Corporation and J. P. Morgan Trust Company, National Association (successor in interest to Bank One Trust Company, National Association), as Trustee (which Indenture has been filed as an Exhibit to the Company's Form 10-K for the year ended December 31, 2000) Exhibit 12 Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends Exhibit 31a Certification by Chief Executive Officer required by Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934 Exhibit 31b Certification by Chief Financial Officer required by Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934 Exhibit 32 Certification required by Rule 13a-14(b) or 15d-14(b) of the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States Code Exhibit 99 Directors' resolution regarding the filling of vacancies on the Board of Directors </TABLE>